The Week in Charts (11/21/24)
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The most important charts and themes in markets and investing…
1) Inflation Isn’t Going Away
While the rate of inflation may have moved lower over past few years, it doesn’t seem to be going away anytime soon.
That much is clear from the October CPI report, which showed Overall CPI moving up to 2.6% and Core CPI (excludes Food/Energy) moving up to 3.3%.
This was the 42nd consecutive month with Core CPI above 3%, the longest period of elevated inflation in the US since the early 1990s.
Among the major components in CPI, Transportation has shown the biggest increase over the past year, rising 8.2%.
Skyrocketing Auto Insurance rates have been contributing to higher transportation costs. The 53% increase over the past 3 years is the highest we’ve seen since 1975-78.
The single biggest component in CPI, Shelter, remains stubbornly high at 4.9%.
This is the longest period of elevated housing inflation since the late 1980s/early 1990s.
In response to higher housing costs, many lower income households have been making sacrifices, including: eating out less often at restaurants, taking fewer vacations, and skipping meals.
2) The Bond Has a Message for the Fed
It’s been two months since the Fed first cut rates and the 10-year Treasury yield is 76 bps higher, moving from 3.66% up to 4.42%.
That’s very different behavior than the start of previous cutting cycles where the 10-year Treasury yield either moved lower or stayed roughly the same.
What is the bond market saying to the Fed: a) you may be done with inflation but inflation is not done with you, and b) the road back to the easy money policies of the past will not be an easy one.
We’ve seen a dramatic shift in Fed Funds Futures over the past two months, with the expectation for the end 2025 moving from 2.8% up to 3.8%.
As for the December rate cut, the market odds are now only a little better than a coin flip at 56%, down from 72% a week ago.
What could influence those probabilities are two more inflation reports that will be released between now and the December 18 FOMC meeting. The Cleveland Fed is currently projecting a higher reading for the Fed’s preferred measure of inflation (Core PCE of 2.76%, highest since April) and higher CPI reading (2.7% vs. 2.6% today). If these projections are correct, the Fed will have a harder time justifying additional rate cuts.
3) Borrowing From Our Future
The US federal government continues to spend money like a drunken sailor with a budget deficit of over -$2 trillion over the last year.
Over the last 10 years, US Federal Government Tax Revenue has increased 60% while Government Spending has increased 93%.
Will a Department of Government Efficiency (DOGE) led by Elon Musk and Vivek Ramaswamy find waste, fraud, and abuse within this $6.9 trillion morass?
That seems like a high probability bet. But will Congress and the Senate pass legislation to make meaningful cuts from the budget? That will likely prove to be a much harder task.
What does sitting in cash cost you?
Sometimes nothing, when stock are going down. This is particularly true during long bear markets.
But much more often, it’s costing you something, with that something increasing as the years go by.
Over one-year periods, the average cost of holding cash has been roughly 8%. But over 30-year periods, this grows to more than 2,000%.
5) Anything But Average
Including dividends, the S&P 500 is currently up over 25% in 2024, well above the historical average return of 9.8%.
25% sounds abnormally high, but is actually much more common than you might think.
The S&P 500 has finished with a total return above 25% in 26 out of 96 years since 1928. That’s 27% of the time.
How many times did the S&P 500 end the year down 25% or more?
Only 5 (5% of all years). h/t Jamie Battmer
6) A Few Interesting Stats…
a) The average growth of $100k invested in US Stocks over 30 years is $2.5 million versus $395k for the same initial investment in Treasury Bills.
b) Over 11% of credit card balances in the US are now 90+ days delinquent, the highest since 2012.
c) The total market value of Dogecoin moved above $60 billion last week, which was higher than 331 companies in the S&P 500.
d) Bitcoin is up over 40% since the election, rising over $25,000. In November 2013, it crossed above $1,000 for the first time. Today it hit $99,000.
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